Following a slow 2013, US venture capital firms are aggressively raising money to invest in new startups as the technology industry has heated up.
Spark Capital of Boston, which previously backed Twitter Inc. and virtual reality company Oculus VR, announced this week it had raised $375 million for a new fund, a little more than a year after raising a $450 million fund.
“Tech in general is in favor right now — it’s a market that is hot again,” said Anand Sanwal, chief executive of CB Insights Inc., a New York research firm that tracks investment in startups. “If you’re a good fund, the wind is at your back.”
Already through the first five months of 2014, venture firms are well ahead of last year: $12.4 billion in total fundraising, some 78 percent above what they had raised through the first half of 2013, according to Thomson Reuters and the National Venture Capital Association, and additional research by the Boston Globe. For all of 2013 venture firms raised $16.7 billion in 2013, the lowest amount in several years.
“I think the climate is markedly improved over the past year,” said Sean Dalton, general partner at Highland Capital Partners in Cambridge, which closed a new fund of approximately $400 million last fall.
Other new funds include $1.5 billion by Andreessen Horowitz, $2.2 billion by Technology Crossover Ventures, and $1.5 billion by Accel Partners.
Though based in California those firms are prominent investors in Massachusetts software companies. Technology Crossover Ventures and Andreessen Horowitz both participated in the $100 million funding for Actifio Inc. of Waltham in March, while Accel Partners took part in the $17 million round for Circle Internet Financial Ltd. of Boston that same month.
The increased enthusiasm by investors in venture capital funds, which include university endowments and public pension funds, results from a confluence of factors: multiple billion-dollar valuations for privately-held tech companies such as Airbnb, Uber, and Dropbox, huge payouts from big acquisitions such as Facebook’s $19 billion deal for WhatsApp, and the stock market performance of venture-funded tech firms that went public, such as LinkedIn Corp. and Workday Inc. The tech-heavy Nasdaq Composite has outperformed the broader S&P 500 over the past 12 months.
In Massachusetts, tech companies Actifio and Wayfair LLC each were valued at more than $1 billion during recent rounds of new venture investments.
“As the market and sentiment around tech is hot, that leads to companies getting higher valuations more easily,” Sanwal said. “That makes it easier for VC firms to raise money. They go hand in glove.”
On the fundraising side, the big money continues to go to the most successful firms. Spark Capital, for example, has been on a tear lately, with successful investments in Twitter, Oculus, Wayfair, an e-commerce site that is poised to go public this year, and Tumblr, which Yahoo acquired a year ago for $1.1 billion.
Altogether, the upward trend runs counter to some of the “doomsday scenarios” that critics of the system have predicted for venture capital in recent years, said Adley Bowden, director of research at PitchBook, a venture capital research firm. For instance, the Ewing Marion Kauffman Foundation, a prominent think tank focused on entrepreneurship, issued a report in 2012 referring to the VC model as “broken” due to underperformance by the venture industry.
“As the numbers for fundraising were going down, there were definitely some people wondering if there was going to be a venture shakeout,” Bowden said. “But it seems like that’s not coming true.”
This article appears in the Boston Globe on May 31, 2014.
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Kyle Alspach has worked in journalism in Massachusetts since 2005 and was one of the original staff writers at BetaBoston.
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